ME unrest may hurt commercial aircraft companies

London, March 3, 2011

The unrest in the Mena region could derail long-term growth in demand for commercial aircrafts due to the impact on oil prices, with supply-driven price hikes likely to dent airline margins, Sanford C. Bernstein analysts said.

If margins fall, commercial aftermarket-oriented companies should be hit faster than original equipment manufacturers such as Boeing and Airbus maker EADS, as airlines respond quickly to cut aftermarket spending, Bernstein analysts said.

'We see civil disruptions in Libya and Algeria as being much more significant for commercial aircraft markets than disruptions in Egypt because of the potential for sustained supply-driven oil price shocks,' analysts, led by Douglas Harned, wrote in a note to clients.

Revolt has ripped through Libya, the world's 12th largest oil exporter, and knocked out more than 50 per cent of its 1.6 million barrels per day (bpd) output.

Concerns that the conflict might disrupt more Libyan output and that protest in the region may interrupt supply from other major producers in the region has spurred oil prices to 2-1/2 year highs. Brent rose to near $120 a barrel on February 24.

Oil supply-driven price increases have far greater potential to hurt airline margins than demand-led increases, as current economic conditions do not allow airlines to raise prices without losing traffic, the analysts said.

Brent crude oil tumbled more than $3 on Thursday, dragging other commodities lower in its wake after Venezuela offered a peace plan to end the crisis in Libya.

News network Al Jazeera said earlier the plan would involve a commission from Latin America, Europe and the Middle East trying to reach a negotiated outcome between Libyan leader Muammar Gaddafi and rebel forces for the North African oil-producing country.-Reuters